Is your money out of control?

Is your debt at ear-level, and still rising? Or has your main source of income suddenly vanished?

Don't panic. Many people hit financial crisis point. But with good information and a clear head, you can get through it.

Work out what went wrong.

The first step is to admit to the cause of the trouble. Whether it's something you couldn't help, such as sickness or redundancy, or just plain old overspending, try to put your feelings to one side. This is a practical problem that needs practical solutions.

Talk it through

Talk it through with a friend or relative you trust, or someone at your local Citizens Advice Bureau.

If your income has suddenly fallen...

Check you are getting all the state help you can. Use Entitled-to's calculators to see which benefits and tax credits you can claim, or find out at the Department for Work and Pensions website, and claim.

Once you know how much your new income is, adjust your budget to suit it. You'll have to make some sacrifices, but at least you'll be in control of your money again, and can have your luxuries back when things improve.

How much debt is too much?

It's normal to have some borrowing. If you're worried your debts may be too big, take the Consumer Credit Counselling Service's quick debt assessment.

Still hanging in there?

If you're managing your debt repayments - but only just - there are two things you need to do:

• 1. Check you're borrowing as cheaply as possible. You may be able to refinance your debts by taking out a personal loan to pay off an overdraft and credit card balances. Or perhaps you can switch your credit card balance to a card offering zero interest on balance transfers.
• 2. Work out a new budget so you can cut your spending.

Refinancing debt

Refinancing debt gives you breathing space by cutting your repayments, but don't waste this reprieve. Changing your habits is vital, because you won't be able to refinance more cheaply again. This is your one chance to spend less and put your financial future on a firm footing.

Help, I can't pay!

If your debt is already unmanageable and lenders are closing in, find someone to help. Contact:

• your local Citizens Advice Bureau,
• the Consumer Credit Counselling Service,
• or National Debtline.
• Or ask your local authority for the number of another independent, non-fee-charging money adviser.

Avoid debt advisers who charge fees. The Consumer Credit Counselling Service says fee-charging firms like this offer no more than the free services available.

The truth about IVAs

Individual Voluntary Arrangements are formal agreements between a debtor and their creditors. IVAs are used more and more now for people who can't manage their debts but want to avoid bankruptcy.

Everywhere, it seems, companies offering IVAs are looking for your custom, even though these arrangements aren't always the best solution.

In 2007, the Office of Fair Trading warned 17 firms to stop misleading people with their adverts. Some failed to mention set-up and administration fees, the fact that homeowners may have to remortgage later on, and that your credit rating could be affected for six years. One firm claimed that up to 90% of debts could be written off, when the maximum was 60% to 70%.

The content of this article is intended for general information and personal use only. Nothing in this article should be construed as advice under the Financial Services and Markets Act 2000.

©2008 Rachel's Guide to Money